Why Filing Early Makes Sense

Even though many taxpayers file their tax returns on or about April 15 every year, there is no need to put it off until the last minute. Indeed, filing an early tax return can make sense for a variety of reasons.

In 2019, despite the government shutdown and changes in the tax law following passage of the Tax Cuts and Jobs Act (TCJA), the IRS said it would begin processing tax returns beginning Jan. 28, 2019. Even if you don’t file early, there are reasons to begin preparation as soon as you can.

Starting your filing process early gives you the time you need to collect the evidence you need to claim all of your deductions. You will avoid the headache of the middle of the night stress over figures and receipts. Your accountant will have a more flexible schedule and will probably be able to start working on your accounts immediately. Also, by filing early you will short circuit would be identity thieves.

Key Takeaways

  • The Tax Cuts and Jobs Act doubled the standard deduction, eliminated the personal exemption and made many other changes that could change how you do your taxes, starting with the 2018 tax year.
  • Early filing gets you a faster refund and maybe a larger one.
  • Lack of rushing gives you time to avoid mistakes that could lead to an audit
  • Tax planning before Dec. gives you time to estimate capital gains, harvest tax losses, make last-minute charitable deductions, and shift some deductible items to the most useful tax year.

New Standard Deduction

One of the most important decisions taxpayers have to make, starting in 2019 for their 2018 taxes, is whether to take the new, larger standard deduction or itemize. Single filers and married taxpayers who file separately can now claim a $12,000 standard deduction. For married couples filing jointly the standard deduction is $24,000. Heads of the household get a deduction of $18,000. The sooner you begin working on your tax return, the sooner you will be able to decide.

New SALT Tax Deduction Limit

The TCJA also limits your total state and local tax deduction (SALT) to $10,000. This limit may provide further incentive to take the standard deduction if your SALT deduction is typically more than the new limit and you don't have a whole lot of other deductions. Getting a head start on your taxes will help you avoid an unforced error when it comes to this important part of your tax return.

A Faster and Larger Refund

Avoid procrastination, give yourself peace of mind and check this important item off your new year’s to-do list. Once the IRS says it will begin accepting returns, why not turn yours in and get this unpleasant task over with?

Last year 73% of taxpayers received an average refund of $2,825. If you have money coming to you, there’s no reason to let the government keep it longer than necessary. Filing sooner means a faster refund because early on the IRS won’t be as busy early in the tax season as it will be in April.

Data from the IRS indicate that those who file no later than mid-February get larger refunds. This may be, in part, because the sooner you start the less rushed you are and the more likely you will be to take advantage of all available deductions instead of taking the standard deduction.

Some people count on their income tax refund to pay major bills. Filing early puts the money in your hands sooner and may help you avoid taking out an expensive short-term loan to cover those expenses, especially if you're still paying off your holiday bills.

No Crowds and No Penalties

If you are someone who mails in your tax return, filing early avoids congestion and a crowded post office. Better to file early—especially if you're one of the taxpayers still doing it by mail—and avoid the hassle.

Filing early gives you time to fully understand changes to tax law or deal with changes in your life that alter your filing status. Mistakes from rushing at the last minute can trigger audits that can lead to penalties and interest. Given changes brought on by the TCJA, this point is more important than ever.

Access to Preparer and Information

Your certified public accountant (CPA) or other tax preparers will not be as busy in January or February as in April. Early access means your CPA will have additional time to more carefully consider your situation and help you with your return.

Buying a home or going back to college requires information from recent tax returns. Preparing your taxes early will provide you with the most up-to-date information available.

Avoid Amended Returns

Starting early gives you the time to file an accurate return. An inaccurate return will likely become an amended return. Amended returns invite audits. Here are some things to watch out for as you pursue accuracy.

Mistakes in Official Documents

Check all incoming statements, including W2s, 1099s, interest statements and anything used to justify a deduction. Companies, banks, and financial institutions make mistakes. Catch them before you file.

Forms That Arrive Late

Early filers can neglect a 1099 or K-1 that arrives late. Make sure you have all the documentation you need before you click on “send” or drop your return in the mailbox.

Tax-Law Updates Not Reflected in Forms

Legislation passed before April 15 may not be incorporated into paper tax forms or tax software that has not been updated. Watch the news. Be on the lookout for changes that might have been missed. If necessary, you can file an amended tax return.

Be Honest

If you do have to amend your return, don’t correct only the things that are to your advantage. Correct anything that is wrong.

TCJA Changes

With 2018 being the first year affected by the changes wrought by the TCJA, it's important that you take the time to understand them fully. Even the 1040 Form has changed. In fact, if you previously used the 1040EZ or 1040A, those forms were eliminated, starting with 2018. You will not be able to use 2017's tax filing as a template for 2018. The good news: For 2019, you will again have a template that works.

Shifting Tax Burdens

If you take that head start before Dec. 31, you will have time to estimate capital-gains distributions, harvest losses, contribute to a 529 savings plan or make last-minute charitable contributions. You can also take advantage of the opportunity to shift deductible items—such as property taxes, business expenses, or even mortgage payments—to whichever year makes the most sense tax-wise.

You can still maximize contributions to a company 401(k) and/or any IRA plans you have and make deposits to your health savings accounts until April 15, of the year following your tax return date (April 15, 2020, for your 2019 taxes).

Time to Save

If you owe the IRS, filing early gives you time to save up the money. Remember, you don’t have to pay until the filing deadline. Waiting only to find out that you owe more than you expected could put a real crimp in your budget. A report by the Government Accountability Office suggests that more than 30 million Americans may owe taxes this year due to under-withholding. One possible trigger: the new tax law's elimination of the personal exemption.

Prevent Identity Theft

The sooner you file, the less time there is for an identity thief to file for you—and take your refund. This could lead to all sorts of mayhem, especially if the thief claims false deductions, fails to report income or otherwise taints a return in your name. Fixing a mess like this can take months.

Filing early makes you much less vulnerable to identity theft; you file before thieves can step in and file "for" you.

The Bottom Line

Most experts agree that it’s best to at least start your return as early as possible. The decision to file early may depend on the complexity of your return if you are receiving a refund and the extent to which the new tax law affects you. Follow the advice of your financial or tax advisor to make sure your return is accurate and complete.